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Report of the
Inter-Ministerial Committee
for
Boosting Exports from MSME Sector
Ministry of Finance
July 2013
THE INTER-MINISTERIAL COMMITTEE FOR BOOSTING
EXPORTS FROM THE MSME SECTOR
Chairman
Shri R.S.Gujral
Finance Secretary
Member Member
Shri S.R. Rao Shri Sumit Bose
Commerce Secretary Revenue Secretary
The Committee had discussed with different departments dealing with MSMEs
and working in sectors with large export potential. Suggestions were asked from the
different Export Promotion Councils and Industry Associations on the issues and the
problems faced by them. Inter Ministerial meetings were held with 17 Industries
Associations and Export Promotion Councils who had responded to the requests sent
to them for their inputs. The Committee would like to express their gratitude to the
representatives of the Associations and Councils Members of the MSME industry
who generously gave their time and shared their knowledge on these issues.
The Committee would also like to place on record their gratitude to the Cabinet
Secretary for entrusting this responsibility on the Committee Members.
R. S. Gujral
Chairman
Summary of Major Recommendations
Micro, Small and Medium Enterprises (MSME) play a crucial role in providing
employment opportunities and help in industrialization of rural & backward
areas also. MSMEs are complementary to large industries as ancillary units, and
this sector contributes enormously to the socioeconomic development of the
country.
The Committee notes that the major problems for the MSMEs relate to the
availability and cost of credit, marketing support, improving productivity,
technology/skill upgradation, infrastructure and the institutional framework for
the MSMEs.The Committee also notes that there are issues related to specific
products like Chemicals, Plastic, Leather, Handicrafts, Textiles and Agricultural
Products and specific markets. On each of the issues the Committee has made
suggestions for immediate implementation and for the medium term.
Infrastructure for MSMEs: 24*7 facilities for export consignments at major air
cargo/sea port complexes; enhancement of ASIDE scheme and development of
MSME clusters near Highways/Rail Corridors.
(i)
Institutional Framework: Constitution of a Standing Committee of Secretaries
to resolve policy and implementation related issues; greater coordination at the
ground level between Customs and DGFT offices.
Sector Specific Issues : Based on the suggestions received from sector export
councils/associations, the Committee recommends a cess of 0.1% on the
production of chemical and Plastics, for creating a fund for technology
upgradation for the two sectors; additional budgetary support for handicrafts
sector, enhancing the support under Integrated Leather Development Scheme;
calibrate the exports of cotton yarn; avoid unintended exclusions of fabric items;
amendment of APMC Acts for enabling direct purchase of horticulture/vegetable
items from farmers by exporters; greater infrastructure support(testing labs,
pack houses) for processed agriculture exports.
The Committee was conscious of the fact that a number of the recommendations
would increase the budgetary expenditures/reduce tax revenue. However,
keeping in view the Current Account Deficit, there is an imperative need to boost
exports. It is in this context that the Committee has recommended that fiscal
benefits/tax related incentives may be limited to 5 years.
(ii)
Table of Contents
Page No.
Preface
Summary of Major Recommendations (i)
Abbreviations (v)
1. Background 1
1.1 Challenges for India 1
2. Trade Scenario 3
2.1 Global Trade Scenario 3
2.2 Outlook for 2013-2014 4
2.3 India’s Exports Scenario 5
3. Role of MSMEs 7
3.1 Global MSME Scenario 7
3.2 Role of MSMEs in India 7
3.3 Role of MSMEs in Indian Exports 8
3.4 Major Issues Concerning the MSME sector 9
4. Formation of The Committee 11
4.1 Committee Constitution 11
4.2 Mandate of Other Committees 11
4.3 Suggestions Received in Review Meeting of March, 2013 11
5. Recommendations of The Committee 12
5.1 Availability and Cost of Credit 12
5.2 Marketing Support 14
5.3 Productivity/Technology/Skill Upgradation of MSMEs 15
5.4 Duties/Indirect Taxes/Incentives Related Issues 18
5.5 Infrastructure 20
5.6 Institutional Framework 21
5.7 Sector Specific Issues 22
5.8 Specific Market Related 27
5.9 General Recommendations 28
5.10 Concluding Remarks 29
Annexures
I. Policy framework for MSME in different countries 31
II. Definition of MSME in different countries 40
III. Members of the Inter-Ministerial Committee for boosting
exports from MSME sector 41
IV. Inter-Ministerial Committee for accelerating Manufacturing
in MSME Sector 42
V. Second Task Force on Transaction Cost in Exports 43
VI. List of participants who attended meetings of Inter-Ministerial
Committee 44
VII. Suggestions received in the Review Meeting on 15.03.2013 48
VIII. Suggestions & recommendations of various associations 50
Bibliography 80
LIST OF ABBREVIATIONS
(vi)
Chapter 1
BACKGROUND
The twin challenges of Fiscal Deficit (FD) and Current Account Deficit (CAD) are
a matter of serious concern for the country. While the issue of FD was
examined by the Kelkar Committee in 2012 which set out a roadmap over the
next few years; issues relating to the CAD have now been receiving focused
attention from different agencies, both in India and abroad.
1.1 Challenges for India
The third challenge, very much related to the previous one, is the high and
sticky inflation. Efforts in the past months have brought down headline WPI
inflation to about 7 percent and core inflation to about 4.2%. It is food inflation
that is worrying. India’s persistently high inflation is a fallout of myriad factors
that are both cyclical and structural in nature. Containing inflation near the
comfort zone of 4 to 5 percent is necessary to facilitate sustainable growth.
1
WPS (DEPR) : 16/2012, Sustainable Level of India’s Current Account Deficit, Reserve Bank of India
1
1.1.4. Manufacturing Sector Growth
2
Chapter 2
TRADE SCENARIO
2.1 Global Trade Scenario
During the period 2008‐09 from peak to trough, world merchandise trade
volumes contracted by 19 per cent2. By January 2009, nine out of ten countries
recorded a contraction in exports. World trade growth decelerated sharply in
2011, as the global economy struggled under the influence of financial
uncertainty, natural disasters and civil conflict. All of these factors combined to
produce below average growth in trade in 2011. The recovery from the 2008
crisis has so far clearly been driven by the emerging economies. Below-trend
recovery of global trade is almost fully explained by the weaker import demand
in developed economies, and recurring bouts of uncertainty regarding the Euro-
zone. Import demand declined to 21 per cent3 below trend by 2009, and did not
catch up thereafter.
World trade growth fell to 2.0% in 2012 (down from 5.2% in 2011).It is expected
to remain sluggish in 2013 at around 3.3%, which is below the average rate of
5.3% for the last 20 years (1992–2012)4 and well below the pre-crisis average
rate of 6.0% (1990– 2008), as the economic slowdown in Europe, and stagnant
growth in USA and Japan continues to suppress global import demand. Flagging
output and high unemployment in developed countries reduced imports and fed
through to a lower pace of export growth in both developed and developing
economies. Slightly improved economic prospects for the United States in 2013
would only partly offset the continued weakness in the European Union, whose
economy is expected to remain flat or even contract slightly this year, according
to consensus estimates.
2
International Financial Discussion Papers, Number 1017, March 2011
3
Source: UN/Deptt. of Economic and Social Affairs, (http://www.un.org/en/development/desa/index.html)
4
Source: WTO site (http://www.wto.org/english/news_e/pres13_e/pr688_e.htm)
3
The following charts show the biggest exporters of the world and the
composition of world trade in 2012.
China
11%
United States of America
9%
Germany
8% Japan
61% 4% Netherlands
4% France
3%
Optical, photo, technical,
3% 4% 7% medical, etc apparatus
Others
5
http://www.imf.org/external/pubs/ft/weo/2013/update/01/
4
Trade in the early part of 2013 will remain sluggish because of weak import
demand in Europe, even as conditions gradually improve elsewhere, because of
the large weight of the EU in world imports (32% in 2012 including intra EU
trade; 15% excluding it). But weakness in advanced economies will affect
external demand, as well as the terms of trade of commodity exporters, given the
assumption of lower commodity prices in 2013. China’s exports may be
hindered by the slowdown in Europe, but considering the fact that US is now its
biggest trading partner owing to EU crisis, part of the slowdown in Europe can
be compensated by the slight improvement in US economy. China’s GDP growth
is expected to remain strong compared to the rest of the world in 2013, which
should provide support for imports from other countries. In the light of these
developments, WTO forecasts a small pickup in world trade volume growth to
3.3% in 2013, from 2.0% in 2012. World trade volume growth for 2014 is
expected to improve to 5.0%6.
An analysis of the export indicates that the steepest decline has been in the
export of Iron Ore with a 65% decline in 2012-13 as compared to 2011-12.The
decline in Iron Ore has been from the level of $ 6.03 billion in 2009-10 to $ 1.61
billion in 2012-13.Other significant product groups showing a decline in export
in 2012-13 vis-à-vis 2011-12 are gems & jewellery (-3.5%), engineering goods
(-3.1%), electronic goods (-9.27%), readymade garments of all textiles
(-5.76%).However, certain products still showed an increase during 2012-13,
like rice (+25.5%), spices (+1.8%), oil meals (+19.84%), processed minerals
(+3.2%), leather and leather manufacturers (+ 1.1%), drugs and pharmaceuticals
(+10.31%), basic chemicals (+10.93%), cotton yarn/fabrics/madeups and
handloom products (+8.56%) and petroleum products (+7.07%).
As per the information received from the Deptt. of Commerce, Indian total
merchandise exports and imports amounted to approximately 43.2 percent of
GDP in 2011-12, with merchandise exports accounting for 16.5% of GDP.
Services sector, a major driving force of the Indian economy, contributes around
25% of total trade8. It accounts for around 40% of total exports and 20% of total
6
http://www.wto.org/english/news_e/pres13_e/pr688_e.htm
7
Annual Report 2012-13, Deaprtment of Commerc
8
Department of Commerce, Internal Communication
5
imports. India’s share of services’ exports in world exports of services was 3.3%
in 2011 and has been increasing faster than the share of Indian merchandise
exports in world exports. The share of top five commodities in Indian
merchandise exports during the period 2012-2013 is shown below:-
Engineering Goods
19.96%
37.63% Gems & Jewellery
India has in the last few years sought to significantly diversify its trade from
advanced economies of Europe and America to Asia and Africa. Region-wise share of
total Indian exports during April-November, 2012-13 is shown in the following pie-
chart:
9.6 USA
19.5
Europe
Asia
18.7 Africa
10
However, new export markets have their own challenges and costs. This is
particularly so in the case of MSME exporters due to their smaller size,
infrastructure & finances; highlighting the need for higher marketing support.
6
Chapter 3
ROLE OF MSMES
MSMEs play a significant role in the global economy as well as in the domestic
economy, with a high revenue and employment generation coming from them,
particularly in emerging economies. 11In OECD economies, MSMEs account for
over 95% of the firms, 60-70% of employment, 55% of GDP and generate the
largest share of new jobs. In developing countries, more than 90% of all firms,
outside the agricultural sector, are MSMEs, generating a significant portion of
GDP. For example, in Morocco, a lower middle Income country, 93% of
industrial firms are MSMEs and account for 38% of production, 33% of
investment, 30% of exports and 46% of employment. In Bangladesh, a low-
income country, enterprises that have less than 100 employees account for 99%
of firms and 58% of employment. Similarly, in Ecuador, an upper middle
income country, 99% of all private companies have less than 50 employees and
account for 55% of employment. Globally MSMEs had grown by 6% from the
year 2000 to 2009, with Europe and Central Asia experiencing a growth of 15%.
In half of the high income economies, formal MSMEs employed at least 45% of
the workforce, compared to only 27% in lower income economies12, which
further highlights the importance of MSMEs in economic development and job
creation. Globally, MSMEs employ one-third of the working population. East
Asia and the Pacific have the highest ratio of MSME employment to total
employment, with percentage in China being as high as 80%; therefore,
highlighting the importance of MSMEs to the global economy and their
importance in terms of the role they play in the Global Value Chain.
Countries across the globe use various definitions to define small and medium
enterprises. The parameters on which SME sector is generally defined are:
a. Capital investment on plant and machinery;
b. Number of workers employed; and
c. Volume of production or turnover of business.
The policy framework for the MSMEs in some of the countries has been given in
Annexure I. Definitions of MSMEs in various countries across the globe
(including India) is given in Annexure II.
10
http://iicpsd.org/wp-content/uploads/2013/01/IICPSD-Note-on-MSMEs-and-Inclusive-Market-Composite-Index-final.pdf
11
http://www.ficci.com/spdocument/20249/Grant-Thornton-FICCI-report.pdf
7
improve the entrepreneurial skills and economic empowerment. MSMEs feed
local consumer markets and international value chains.
As per information in the annual report of MSME 2012-13, MSMEs account for
a large share of industrial units which can be seen from the fact that in the year
2011-12, the total number of enterprises in MSME Sector was 447.73 lakhs
with total employment of 1012.59 lakhs. MSMEs are accordingly also effective
vehicles of employment generation. The estimated numbers of enterprises and
employment have increased at an annual compound growth rate of 28.02% and
26.42% respectively. MSMEs contribution to rural development can be observed
from the fact that 200.19 lakhs of the working enterprises were located in rural
areas, which accounted for 55.34% of the total working enterprises in MSME
sector; whereas 161.57 lakhs (44.66%) of the working enterprises were located
in urban areas13. The sector currently produces more than 6,000 quality
products, ranging from handloom saris, carpets and soaps to pickles, auto and
machine parts targeting both domestic and international markets. Provided
necessary support, MSMEs are likely to experience a high growth path, and the
share of MSMEs in the country’s GDP is expected to touch double-digits by the
end of this decade, from the current 8.72 per cent.
3.3 Role of MSMEs in Indian Exports
The share of MSMEs in India's total exports was estimated to be around 43 per
cent in 2011-12. The share of the top six commodities which account for about
70% of total MSME exports is as shown below:14
Pharmaceutical Products
3.4 7.9
11.1
5.3
6.1
Out of the major products of MSME exports, gems and jewellery show a decline
of 3.5% as compared to the previous year.Electronic items show a decline of
9.27% in 2012-13.Readymade garments of all textiles show a decline of 5.76% in
2012-13. Engineering goods as a total group show a decline of 3.1%.However,
drugs and pharmaceuticals had shown an increase of 10.3% and basic
chemicals had shown an increase of 10.93%.
13
Annual Report, MSME 2012-13, Ministry of MSME
8
Even in the first three months of the current year 2013-14, engineering goods
export shows a decline of 6.29% as compared to April-June, 2012.Electronic
goods show a decline of 13.25%, gems and jewellery show a decline of 13.13%,
basic chemicals show marginal decline.However, readymade garmets of all
textiles are indicating a positive trend of 11.1%, cotton yarn/fabrics/madeups
and handloom products show 13.29% increase, leather and leather
manufactures show 8.4% increase and marine products exhibit a 27.8%
increase in exports.
The main markets for the 20 most-exported MSME product groups, which
accounted for more than 90 per cent of MSME exports from 2009 to 2012,
include the USA, European Union (EU), UAE, Turkey, Singapore, Hong Kong,
Israel and Saudi Arabia. The MSME sector accounts for around 45 per cent of
total manufacturing output15. MSME sector has about 36 million working
enterprises and 80 million employment throughout the country. It has been
continuously growing at a rate of 12-13% per annum, far above the large sector.
The MSME sector contributes about 45 per cent of the manufacturing output
and 43 percent of the total exports of the country, and 8.72 per cent of the
country’s GDP. MSME exports have expanded at an annual average growth rate
of 11.0% during 2007 to 201116. For the period 2009-12, MSME exports are
estimated at US $ 325 billion. MSME exports mainly consist of pearls, precious
stones, metals, electrical, electronic equipment, pharmaceutical products,
organic chemicals, articles of iron & steel etc.As per the information received
from the ministry of MSME, for the year 2011-12, MSME exports are estimated
at US $ 131 billion constituting 43% of total exports of the country. Participation
in exports gives MSMEs exposure to global trends, and stimulates innovative
ideas and designs.
Although Indian MSMEs are a diverse and heterogeneous group, they face some
common problems, as follows:-
a. Lack of availability of adequate and timely credit. The major dependence for
some sectors (eg. handicrafts) is for larger working capital requirement, which
directly impacts their production cycle
b. High cost of credit, with interest rates of 14-16%.
c. Collateral requirements being insisted upon by banks
d. Limited access to equity capital for MSMEs
e. Marketing is one of the critical areas where MSMEs face problems including
product differentiation, brand building, customized tailor-made services,
clientele building, after sales servicing etc. Many entrepreneurs are not entering
in the field of exports due to lack of market knowledge, availability of a growing
domestic market, and the complexities of international trade.
15
http://www.business-standard.com/article/sme/msme-share-in-exports-was-43-in-2011-12-113060300986_1.html
16
Ministry of MSME, Annual report
9
f. Limited sclale of oprations leads to low production capacity (and consequent low
exportable surplus), which is related to the maximum limits for capital
investment for definition of MSME
g. Problems of designing, packaging and product display due to limited capacities-
financial and human
h. Inadequate infrastructure facilities, including power, water, roads, etc. which
are however not unique for MSMEs, but impact manufacturing more than
services
i. Low technology levels and lack of access to modern technology.
j. Lack of skilled manpower
k. Absence of a suitable mechanism which enables the quick revival of viable sick
enterprises and allows unviable entities to close down speedily.
l. Lack of coordination among the various organizations involved in the promotion
of MSMEs, including organizations of the State Governments, and poor linkages
with the institutional stakeholders in the private sector. There is also
duplication of programmes run by various Ministries for the same target group
m. Lack of reliable and updated data base to help in monitoring the development
initiatives and formulation of appropriate schemes to meet the differential needs
of the heterogeneous beneficiaries.
n. Non availability of raw materials at a competitive cost, very often due to low
volumes
o. High transaction costs and procedural delays leading to high fixed costs.
p. Policy and procedural issues.
10
Chapter 4
These suggestions/issues, along with those received during the meetings with
the different Associations were examined, and helped the Committee in
preparing its recommendations.
11
Chapter 5
The Committee met the different industry Associations and discussed with their
representatives the various issues they face and suggestions to resolve them.
Inputs were also taken from the different Government departments and
agencies. The detailed suggestions are given in Annexure VIII. Based on the
suggestions received, the Committee makes the following recommendations.
The cost of credit and credit availability is perhaps one of the most important
factors for MSMEs. Availability of credit at internationally competitive rates is a
major issue facing the MSMEs in India. The Committee while recognizing the
limited room available for budgetary support, after reviewing the various
suggestions recommends the following:
The cost of export credit for MSMEs varies from 11-14% even after taking into
account the current 2% interest subvention available. This is on the higher side
compared to international standards. There is a need to lower the interest rate
for MSME exporters. Padmanabhan Committee (RBI) has also recommended
inclusion of export credit under priority sector lending and framing of a suitable
interest subvention policy for long term export credit. While credit to Micro and
Small enterprises is considered as Priority Sector lending, further support is
required for MSME exports. The Committee recommends that an additional 2%
interest subvention may be provided to MSME exporters who repay on a timely
basis. A separate sub-limit of say 8% for credit to MSME exporters, within the
overall priority sector limit may also be stipulated.
Under the swap arrangement, a bank can buy US dollars up to its eligible swap
limit from the RBI and further sell the same amount of dollars at the
prevailing market rates for swaps of a similar tenor. As recommended by
Padmanabhan Committee also, this Committee recommends that RBI may
consider the following regarding the swap facility scheme:
a. Swap facility scheme which is available till June 28, 2013 be extended for at
least 3 years with annual rollover,
b. RBI to provide 100% refinance under the scheme,
c. The fund for swap may be increased from USD 6.5 billion to USD 20 billion to
ensure adequate availability
d. 50% of the total fund should be earmarked for MSME units.
The Committee received many suggestions about the ways to increase access to
finance for the MSME sector. The recommendations of the Committee are as
follows:
a. The Committee recommends that banks should aim that 40% of Export Credit is
earmarked by banks for MSMEs(in consonance with the share of MSMEs in
India’s total exports).
b. As also suggested by Padmanbhan Committee, this Committee suggests
inclusion of ‘export credit to MSMEs’ as an eligible sector for deployment of 50%
of the respective bank’s shortfall in priority sector lending, automatically to be
allocated to export credit for MSMEs in the subsequent year, with the balance
shortfall continuing to be deployed in RIDF.
c. Targets may be given to Banks to achieve a 10% increase in new MSME
enterprises borrowers on an annual basis between 2013-17. Banks should also
look at adding, say, 12 new exporting MSMEs per branch in their Semi Urban
and Urban branches every year.
d. The buyer’s credit limit under automatic route is recommended to be increased
from US $20 million to US $50 million.
e. A group should work out a uniform credit rating format and process, to bring
transparency and speed to this important issue.
13
f. Relaxation of RBI’s external commercial borrowings (ECB) norms, so as to allow
all categories of MSME engineering exporters to raise ECBs for import of capital
goods and equipment.
g. Guarantee coverage under Credit Guarantee Fund Trust for MSMEs (CGTMSE)
may be increased to at least 10 times the present corpus.
h. Industry Associations can become an effective institutional mechanism for
facilitating credit flow to MSME sector. The model initiated by SIDBI in this
direction may be replicated by lead banks in their domain MSME clusters.
i. SIDBI and NSIC may be permitted to raise SLR bonds / Tax free bonds / Capital
Gain Bonds from the market, as per the eligibility limit fixed by GOI.
j. It is suggested to introduce a scheme called “Need for Factoring Services” with a
budgetary support of Rs.750 crore in the next 4 years under which assistance
would be provided for equity or margin money support for factoring companies.
14
5.2.4 Focus On Asia
The Committee also noted that as 50% of India’s exports are to Asia, MDA/MAI
may focus more towards Asia. Greater pro-active support would be required
from commercial sections of Indian embassies in such countries.
15
The Committee recommends that adjustments should be made and MoLE
should expeditiously examine this issue, especially regarding the restriction of
the overtime cap of 50 hours a quarter. The Central Act provides for 50 to 150
hours overtime. Karnataka has perhaps sent such an Amendment to MoLE.
Higher working hours greater than 8 hours to be allowed (with 5 working
days).Women may be allowed to work at night with safety mechanism in place.
Karnataka has perhaps also recommended to tweak Minimum Wage – with
lower wage prescribed for Backward Areas. The Committee recommends that
this may be implemented expeditiously.
It was suggested that ‘clusters’ may be provided with Common Facility Centres
for quality testing, effluent treatment etc. The Committee recommends to
incorporate this in the relevant schemes, like the cluster scheme for Electronics.
17
5.4. Duties/Indirect Taxes/Incentives Related Issues
There is a need to have a supportive duty and incentive structure for the MSME
sector, so that the manufactured product is at a competitive price at the
international level. Products of MSMEs need more incentives as MSMEs have a
limited resource base. While the Committee recognizes the fact that incentives can
be only short term stop gap arrangements, nevertheless, the Committee also
recognizes that the MSME units need more hand-holding and better risk
mitigation. In view of this, the Committee recommends the following:
18
5.4.6 High Cost of ECGC Cover
At present, ECGC reportedly requires banks to take insurance for the entire
export advance book while issuing whole turnover policy. The payment of
premium for covering the entire export advance book may work out to be an
expensive proposition for banks, as the margins are thin in corporate deals. The
Committee recommends that ECGC may consider introducing a new scheme for
MSMEs permitting banks to cover segment/sector specific portfolios. The
Committee also received representation for introduction of a separate ECGC
policy, with more friendly procedures to be implemented for Small & Micro
Exporters (based on Export Turnover). The Committee recommends ECGC to
examine this issue.
5.5 Infrastructure
Good infrastructure facilities ensure the proper delivery and safety of the exported
product alongwith savings in time and cost. The major recommendations of the
Committee on infrastructure facilities for MSMEs are as follows:
The congestion in ports may hamper the export efforts of MSMEs.The Committee
recommends that DGFT/CBEC may look into the matter, and take similar
measures including electronic payments, so that port congestion does not
impede the export efforts of MSMEs.
Locating MSME clusters close to the National Highway or railway corridors was
suggested so as to ensure facilitation for boosting exports. Keeping in view the
increasing difficulties in land acquisition, the Committee recommends that
MSME export clusters may be so identified, and State Governments may be
encouraged to acquire land near Highways and Railways corridors.
The funds available under the ASIDE scheme for development of export related
infrastructure are quite limited. In view of the significant gaps in infrastructure,
increased funding for ASIDE along with a prioritized list of projects needs to be
ensured.
21
5.6.1 Focus On MSMEs
MSMEs face the problem of unpaid invoicing in exports. It was suggested that a
facilitation council should be set up to take up the matter on their behalf at a
subsidized cost. The Committee recommends that the Indian Embassies
(commercial sections) must also be directed to assist in this regard.
The Committee noted that Transactional issues may result in delay of export
consignments sometimes if there is lack of co-ordination between Customs &
DGFT. The Committee recommends that there is a need to strengthen the
existing mechanism and co-ordination between Customs & DGFT. Zonal DGFTs
and the respective Commissioner of Customs should regularly convene meetings
to resolve issues, particularly of MSME exporters. Regional Export Import
Advisory Committees (REIAC) may help the MSMEs exporters in suggesting
measures relating to customs clearance, shipping, credit insurance and export
inspection. The Committee received representations that these REIAC may be
revived and an institutional arrangement should be made for dialog with MSME
exporters.
The awareness among MSMEs of the different schemes seems to be limited The
Committee recommends that in order to guide MSMEs, the export Associations
need to be more pro-active and these Associations must regularly update/inform
the MSMEs regarding the export related schemes, procedures and facilities of
the Government.
The Committee consulted the industry associations of the specific sectors having
high export potential. The recommendations of the Committee on some important
sectors are as follows:
22
5.7.1 Chemicals
a. One of the main raw materials for pigment industry is urea and potash which is
only sold to farmers at subsidized rates. It was suggested that urea & potash be
given at non-subsidized rates to the actual manufacturer of pigments. The
Committee recommends that DGFT resolve this matter in consultation with
Department of Fertilizers – (imports directly by the industry could be examined).
5.7.2. Handicrafts
a. In spite of support for handicrafts, exports from this sector are declining.
Development Commissioner (H) needs to examine the problems faced by
handicraft clusters like brassware, wood products, stone work etc. It was
suggested that thrust should be given to the MSME sectors which have natural
advantage, (like Handicrafts). The Committee recommends that traditional crafts
need to be supported for exports and required budgetary support may be
provided.
23
c. It was suggested that there is a need to enlarge the list of duty free import
provisions of embellishment, trimmings and tools to the handicraft sector.DGFT
may provide a list to CBEC for examination.
d. It was suggested that there is a need for the creation of ICDs for carpet
producing areas as containerized, custom-cleared transportation from the
manufactures’ premises or a centralized location near the manufacturing areas
to the port of shipment is most critical.Existing ICDs are also located outside the
main manufacturing areas e.g. Varanasi ICD.The Committee recommenda that
CBEC may examine the issue.
e. The committee received representation that Automated Scrap Monitoring System
(ASM) may be installed at ICD Moradabad for scanning Radio Active
Contamination (Cobalt 60) in metal handicrafts. Ministry of Shipping is also
likely to install Radiation Portals/Radiation Monitors at major seaports in the
year 2013.For airports, Bureau of Civil Aviation is mandated to install such
Radiation Portals/Radiation Monitors.Committee recommends that scheme be
implemented early.
5.7.3. Leather
a. Increased assistance at 50% on the investment made in plant and machinery
subject to ceiling of Rs. 2 crores under the Integrated Development of Leather
Scheme (IDLS) (as against the current limit of 30% for SSI and 20% for non-SSI
and 20% for all units for assistance above Rs.50 lakhs) was suggested. The
Committee notes that funding is not a problem under the scheme, and
recommends that the scheme guidelines may be made similar to schemes of
M/o MSME / M/o Textiles, in respect of MSME exporters.
b. It was suggested that 100% assistance may be considered under MAI scheme for
organizing visit of leather sourcing delegations. The committee recommends that
MAI support needs to be expanded.
c. It was suggested that Kanpur, Jalandhar & other ICDs be included as
designated ports for importing raw hides & skins, along with posting of
Veterinary inspector to enable these places for AQCS. The Committee
recommends that the matter may be expeditiously resolved by DGFT, CBEC and
Deptt. of AHD&F.
d. Relaxation in import procedure of hides, skins and leathers was suggested for
reduction in transaction cost. The Current position is: i) Raw & Pickled Hides
and Skins can be imported into India against submission of Veterinary
Certificate of the supplying country as per the format notified by DAHD&F and
upon obtaining NOC from AQCS in India. ii) Semi-processed and finished
leathers can be imported into India against submission of Veterinary Certificate
of the supplying country as per their own format and upon obtaining NOC from
AQCS in India. The Committee recommends that DGFT may resolve the matter
in conjunction with DAHD&F.
e. The association requested that frequency of train services should be increased,
between Agra and Mumbai & Kanpur and Mumbai. This needs to be examined
by Min. of Railways & Concor.
24
5.7.4. Textiles
b. It was suggested to calibrate exports of Cotton Yarn. It was also suggested that
Import duty on cotton yarn be reduced from 12% and that export incentive for
export of cotton yarn be removed. The Committee recommends that there should
be no export incentive for export of either cotton or cotton yarn.
d. It was suggested that in order to avoid unintended exclusions Fabrics items may
be covered at the four digit HS level and Made ups items at the two digit HS
level. The Committee recommends that the matter may be examined by CBEC.
f. It was suggested to issue duty credit scrip on import of specialty fabrics at the
rate of 5%, so as to enlarge garment export by using fabrics which are not widely
available in India. The committee recommends lowering of the import duties on
fabrics not significantly manufactured in India.CBEC may examine the proposal
on receipt of details.
g. It was suggested that Govt. should notify that Textiles Committee’s opinion on
classification regarding garments shall be binding on Customs. The Committee
recommends that CBEC may give due consideration to the opinion of the Textile
Committee while finalizing the classification.
5.7.5. Plastics
a. There is an urgent need to increase the export of value added plastic items and
increase its share in the total plastic exports. A major constraint in achieving
this goal is the low production volume of plastic processing industry. Therefore,
it was suggested that Technology Upgradation Fund is essential for Plastic
Processing Sector. The Committee recommends that this issue may be
considered. D/o Chemicals to examine and formulate TUFS for plastic
processing sector, on similar lines as proposed for Chemicals.
b. Plastic Processing Parks, having facilities for design and prototyping of plastic
items, mould & die design centers, tool rooms etc., was suggested to be set up.
25
Action on setting up of 4 PCPIRs should be expedited. The Committee
recommends that D/o Chemicals should closely monitor and expedite progress
of the PCPIR projects. For Common Facility/Design Center, scheme of D/o
MSME may also be tapped.
a. It was suggested that direct purchases from the farmers should be allowed to
reduce the transaction costs. There is a problem in procurement of raw
material due to restrictive provisions in APMC Acts. Market reforms carried out
by the States vary from State to State. Some degree of uniformity in terms of
the provision in the Model Act is needed for ensuring smooth supply of raw
materials The Committee recommends that State APMC Acts need to be
modified, so as to enable direct purchase by exporters from the farmers, of at
least horticulture/ vegetable items.
b. In Food Processing, Quality Certification is a major issue where costs are very
high. The Committee recommends that the facilities for Quality Certification
may be expeditiously expanded.
c. Most of the processed food products were brought under levy of excise duties
from March, 2011. Thus, processed food products, except fruits, vegetables
and milk products, attract excise duty of 2% without CENVAT facility, and of
6%-12% with CENVAT facility. It also attracts VAT ranging from 4% to 16% at
state level. Further, excise duty of 6-12% is also levied on food processing
equipments. For attracting investment to the sector, exemption from excise
duty was suggested for all processed food products, produced by MSMEs.
a. The benefit under Vishesh Krishi Gram Udyog Yojana which was withdrawn
from meat & meat products around two years back, be restored.
c. MOU has been signed with China for export of deboned and deglanded frozen
buffalo meat. Similar agreements need to be pursued with other countries.
26
d. APEDA should facilitate and give hand holding services to the promoters of
abattoirs. Similarly, Dimapur Abattoir could facilitate access to Yangon for
export of meat products. There is need for convergence and formal
intervention.
There are various problems faced by MSMEs in some specific markets like EU,
USA and other markets. The Committee reviewed such problems brought to its
notice, which related to specific markets, and major recommendations of the
Committee are as follows:
Under FEDAI Transit Rules for North America and Latin America, it was
suggested that the transit period for sight bills be increased to 60 days from
the present level of 25 days. The Committee recommends that DFS/RBI may
examine the issue. Padmanabhan Committee (RBI) also recommends for
enhancement of the transit period for sight bills for long distance market.
Focus Market Scheme helps the exporter to offset high freight cost and other
externalities to make Indian exports competitive internationally in select
countries. The Committee received representation that EU and USA may be
brought under FMS for those engineering products which are exported
predominantly by MSME such as articles of iron and steel; hand tools;
machine tools; auto parts; medical devices etc. The Committee recommends
that focused export incentives for products from MSMEs be examined by
DGFT.
The countries where India has very good export potential like UAE, Syria, and
Lebanon do not allow import of Indian agrochemicals unless they are
registered in USA. The Committee recommends that the matter may be taken
up by DOC bilaterally with the said countries.
Metal packaging is exported from India to Sri Lanka but they are not covered in
the FTA. It was suggested that there is a need to look into the inclusion of the
tariff item in the Sri Lanka FTA.Similarly duty concessions extended for tractors
when imported from Japan was mentioned to be affecting the interest of local
tractor manufacturer The Committee recommends that this issue should be
examined by DOC
The threshold for offset policy of Defence for procurement should be reduced to
Rs.75 crore. The tenure of banked offset clause which has been recently
introduced needs to be increased to around 5 years. The Committee
28
recommends that offset is a powerful tool to support high tech items related to
the defence sector. Offset Policy is not being fully utilized to involve the MSME
pvt. sector for such export of high tech items from India. The Committee
recommends that MoD must re-examine in detail the procedure outlined in the
offset policy, so that it can be leveraged to boost the capability and exports of
high tech. items from MSMEs, particularly in the engineering and electronics
product groups.
29
Annexure I
BANGLADESH
Financial Incentives
a. The export earnings of the MSMEs are exempted from income tax and tax
rebates between 30% to 100% are given on export earnings. In the budget of
FY2004-2005, a 30 per cent cash incentive scheme was introduced for
exporters of agro-products and agro-processed goods.
b. Full tax relief is granted to 100% export-oriented MSMEs. They are also
exempted from local taxes.
c. SMEs credit disbursement by financial institutions grew rapidly over the
period 2003-2008. The situation accelerated in 2008-09. Total MSMEs loans
increased by Tk.13441.85 crore.
d. The BASIC Bank Limited was established with the primary objective of
financing Small and Cottage industries. The MOA of BASIC stipulates that at
least 50% of its loan able funds should be invested in small scale industries.
Lower interest rates are charged on loans given to finance MSMEs.
e. Considering the importance of MSMEs financing cell has been created in 2003
in the Ministry of Industries. It has been announced by the cell that 80% of the
total resources would be allocated for the development of small enterprises. It
was also decided in the cell that the BASIC and BRAC bank will work together
as lead banks and will be responsible for distribution of short run credit and
venture capital.
f. To overcome the financial constraints of the SME sector and to induce banks
and Financial Institutions to provide credit facilities to SMEs, Bangladesh
Bank introduced a refinancing scheme for SMEs in 2004 using three sources
of funds: Tk.100 million of Bangladesh Bank’s own fund, US $20 million from
IDA under the Enterprise Growth and Bank Modernization Project; and US $30
million from ADB. Up to April, 2012, an amount of Tk. 2,330.14 crore has
been refinanced under the SME refinancing scheme of Bangladesh Bank.
g. The initial target for all banks and financial institutions was Tk240bn
(US$3bn) in SME loans for 2010. This was achieved and the target for
calendar year 2012 is nearly two and half times the same amount at Tk590bn.
h. The government has lowered the import duty on machinery. Businesses
exporting 80% or more of goods and services qualify for duty free import of
machinery and spares. Facility of 90% loans against letters of credit is allowed.
In 2009 it was decided MSMES would get complete VAT exemption on utilities.
31
c. Around 64 MSME helpline centers have been set up at the district level and
another 7 in different trade bodies. All MSME entrepreneurs are receiving
required information and training from these centers.
d. Upto March 2012, 9699 plots have been allotted to different industrial units.
In FY 2010-11, goods worth Tk. 29,027 crore were manufactured in these
industrial units, out of which goods worth Tk. 16,659 crore were export
commodities.
e. Industrial policy 2010 and SME policy strategies 2005 provide policy directions
with regard to industrialization particularly in case of MSMEs. The Sixth Five
Year Plan (2011-2015) and Ten Year Perspective Plan (2011-2021) have
sketched the long term targets related to export and import during 2011-2021.
VIETNAM
Financial Incentives
a. There are now special provisions in Vietnam’s Trade and Taxation regimes that
allow export oriented enterprises to import duty free intermediate goods from
abroad and to enjoy preferential tax rates.
b. To resolve financial constraints, Credit Guarantee Fund was set up by the
Government to enable MSMEs to borrow with favorable conditions.
c. In 2002, the Ministry of Finance issued a circular guiding expenditure for
supporting trade and export promotion activities of MSMEs, which grants
enterprises more authority in financing their trade and export promotion costs
and for expanding business activities.
d. The International Finance Corporation (IFC) has granted a US$10mn loan to
Vietnam’s Orient Commercial Joint Stock Bank to increase US dollar financing
for small exporters. This is the IFC’s second loan in support of small
Vietnamese exporters under its Vietnam small and medium enterprises
(MSME) liquidity Facility programme.
32
e. One of the milestones was enforcement of the Law of Enterprises in 2000,
which stipulates supporting measures for MSME development.
f. Aiming at improving MSME competitiveness, the government has been trying
to provide MSMEs and other business sectors with increasing support through
support institutions that offer market information and credit incentives.
g. The two-week regional training program on MSME Cluster Development and
Export Consortia which was organized by the Mekong Institute, in
collaboration with New Zealand Aid Programme (NZAID) was successfully
completed on May 25, 2012.The training offered participants to actively
participate through plenary discussions, course activities, group work and
presentation.
JAPAN
a. In order to support business innovation and new business development arising
from internationalization of SMEs, Government of Japan, through various
institutions, provides strategic information and advisory services (entry into
foreign markets, tie-ups, and trade related information with foreign
enterprises) that help the SMEs in their internationalization efforts.
b. A special ‘Law on Supporting Business Innovation by Small and Medium
Enterprises’ has been enacted which is intended to promote creative
development of SMEs.
c. To support the plans of SMEs to venture into new areas of activity, research
and development, and commercialization, Government of Japan is also taking
proactive steps to provide grant support, low-interest loans, and special tax
concessions for eligible SMEs that conduct business in accordance with a
business plan for research and development which has been approved by the
Prefectural Governor under the Temporary Law concerning Measures for the
Promotion of the Creative Activities of Small and Medium Enterprises.
SOUTH KOREA
a. SME Technology Innovation Program- The programme part provides funds to
SMEs for technology development, and has been designed to receive 30% of the
contribution by the Government as technology fees, over five years, when the
product development task becomes successful. Overall, the objective of the
programme is to create virtuous circle, so that the Government could use the
repayments received, for furthering the technological progress of SMEs or for
establishing the infrastructure.
b. The Government of Korea has also established promotional funds for
technological upgradation, including SMEs, involving academia and research
organizations. The Information Promotion Fund (IPF) supports ICT related
projects and start-ups; the Science and Technology Fund (STF) is aimed at
establishment of technology intensive start-ups; the Korea Small Business
Innovation Research Programme (KOSBIR), encourages public institutes to
devote a considerable share (5%) of their investment in technology
development to SMEs.
c. The SME Credit Guarantee Scheme provides guarantees for bank loans
through the Korea Credit Guarantee Fund and Korea Technology Credit
33
Guarantee Fund. The primary objective behind establishment of such funds
was to provide credit guarantee services to SMEs that lack tangible collateral.
The Korean Credit Guarantee Fund has been designed as an extensive risk
management system to counter potential risks leading towards a higher
default probability.
MALAYSIA
a. In order to increase acceptance of SME products and services, the National
Mark quality certification will be further promoted during the Tenth Plan
period. In order to support innovation, 1-InnoCERT will be introduced to
certify SMEs on the basis of innovation and commercialization achievement.
SMEs that receive 1-InnoCERT certification will receive benefits such as tax
deduction for R&D activities and priority in government procurement.
b. Procurement will be used to create demand for innovation and push SMEs to
develop products in areas that are of benefit to the nation and have larger
commercial potential.
c. SME International, Malaysia, is specially established to assist the Malaysian
SMEs to connect with other SMEs worldwide; providing useful platform for
them to overcome the challenges of globalization and trade liberalization in
their quest in breaking the boundaries.
d. SME Corp. will implement Skills Upgrading Programmes aimed at enhancing
the skills and capabilities of workers of SMEs. Under this programme, SME
Corp. will finance 80% of the training cost paid by employers to train their
employees in accredited training centres.
e. Bank Negara Malaysia has also launched a RM 200 million Micro Enterprise
Fund to increase access to micro financing for micro enterprises with viable
businesses.
f. Government has proposed to strengthen risk capital industry to increase
access to funding for innovative start-ups.
CHINA
a. China has instituted the ‘Spark Programme’, which is a kind of a national plan
encouraging the technology innovation in the ‘villages and towns’ enterprise.
This programme is being in place since 1986, promoting the technology
innovation capacity in ‘villages and towns’ enterprises.
b. The Government has established over 1200 productivity promotion centers,
which provide diverse range of technological services for over 100,000 SMEs
every year.
c. The Chinese Government enacted the SME Promotion Act, in 2002,
emphasizing fair treatment and level playing field for SMEs. The Law ensured
greater access to finance and encouragement to venture capital investments in
SMEs.
d. Recognizing the limited financial opportunities available to SMEs, the Chinese
Government has created a network of credit guarantee agencies. It is reported
that the credit guarantee system includes a framework of ‘onebody, two wings,
four levels’. According to this model, the prefectural credit guarantee
institutions give guarantee in their regions. The provincial credit guarantee
34
institutions grant reguarantee for those credit guarantee institutions at lower
levels, and supervise them along with People’s Bank of China. They can also
grant guarantee directly. National credit guarantee institutions have been
established as guarantors of last resort and grant re-guarantee to the credit
guarantee institutions at lower levels.
e. SME International Market Development Fund has been established under SME
Promotion Act drawing resources from central and provincial budgets. The
fund partly supports the market development activities of SMEs.
SINGAPORE
a. To improve access to financing for SMEs, the Government has established
various schemes such as the 2005 SME Access Loan, a securitized loan
scheme that had generated loans for around 400 SMEs. Apart from lowering
corporate income tax rate to 18% from Year of Assessment 2008, the Singapore
Government had increased the partial tax exemption threshold for companies
from S$100,000 to S$300,000 while startups can continue to enjoy full tax
exemption on the first S$100,000 of their chargeable income in the first 3
years of operation.
b. The Government will commit S$ 850 million as part of the Enterprise
Development Fund (EDF) over the next five years, to be administered by
SPRING (Governmental agency dedicated to the promotion of Singapore’s
economic growth and productivity) Singapore and International Enterprise (IE)
Singapore.
THAILAND
a. Industrial Technology Assistance Program (iTAP) is an industrial technology
support program for SMEs to help them meet the challenges in introducing
technology based products and processes. iTAP include: Industrial
Consultancy Services, Technical Training and Seminars, Techno-Business
Matching, Technology Acquisition, Provision of Industrial and Technology
Information, Linkage to other Industrial Service Organizations.
b. SME Promotion Plan 2007-2011 contained numerous support measures for
product quality improvement; establishing business incubator centers in
regional and local areas; support for participation in trade fairs; setting up of
exhibition centers for SME products throughout the country; improving
logistics or distribution channels and creation of industrial clustering and
networks.
c. Under the New Entrepreneurs Creation, NEC program, the SME Bank provides
business counseling and training to resolve the challenges associated with
running a business and development of businesses.
d. The Government established the Market for Alternative Investment (MAI) to
enable access to capital for smaller companies. The MAI serves as a much
needed avenue to facilitate SME equity financing in Thailand.
e. The Company Directed Technology Development Program (CD) provides
competitive financial support to industrial operators who want to do research
and development in order to develop new products, improve manufacturing
processes, set up a laboratory, conduct reverse engineering, and commercialize
successful research.
35
f. Key SME development programme was the establishment of a Venture Capital
Fund, worth Bt 5 billion, in the year 2003, aimed at creating joint ventures in
SME projects. The Fund was used in conjunction with an existing SME
Venture Capital Fund worth Bt 1 billion, being managed by the One Asset
Management Corporation.
g. Credit Measures
PHILLIPINES
a) The most important piece of SME legislation, the Magna Carta for Small
Enterprises, was passed in January 1991. The Magna Carta is aimed to
consolidate all government programs for the promotion and development of
SMEs into a unified institutional framework. The Magna Carta had three
important provisions, namely: (i) creation of the Small and Medium Enterprise
Development (SMED) Council to consolidate incentives available for SMEs; (ii)
creation of the Small Business Guarantee and Finance Corporation (SBGFC) to
address SME financing needs; and (iii) allocation of credit resources to SMEs
by mandating all lending institutions to set aside 8% of their total loan
portfolio to SMEs (6% for small and 2% for medium enterprises).
b) Under the Medium Term Philippine Development Plan (2004-2010),
technological support was provided under The One Town-One Product (OTOP)
Program. This involved the development and promotion of a product or service
where a town has competitive advantage. The OTOP interventions include:
provision of a comprehensive package of assistance to MSMEs and OFWs
(Overseas Filipino Workers) through a convergence of services by LGUs (Local
Government Units), NGAs (National Government Agencies) and private sector
in product/design development, skills and entrepreneurial training, marketing
assistance and introduction of appropriate technologies.
36
c) To triple the loans to SMEs, access to various sources of financing are being
improved through the enhanced SULONG (SME Unified Lending Opportunities
for National Growth) Program. SULONG is a unified lending program by
Government Financial Institutions (GFIs) designed to give SMEs greater access
to short and long term funds.
d) Also, under the 2004-2010 Medium Term Philippine Development Plan, the
legal impediments to the establishment of an SME Credit Bureau were
removed and the establishment of an SME credit rating/ scoring system was
fast-tracked. The implementation and operation of the SME Capital Market
have been strengthened and venture capital financing is being promoted.
e) There are many financing programs introduced by the government such as
Wholesale Microfinance Program, a lending facility of Small Business
Corporation to microfinance institutions (MFIs) which have the organizational
capability to provide sustainable credit access to borrowers in the livelihood
sector; Micro Energy Credit Program, to support reforms and priority
investments to improve the quality of life in rural areas through the provision
of adequate, affordable and reliable energy services, specifically the small-scale
renewable energy solar home system/solar lanterns; Microfinance Program for
NGOs and Cooperatives, to facilitate the access of micro-investment
enterprises and the entrepreneurial poor to formal credit and banking services,
that include training, market assistance, business consultancy, whenever
possible, to hasten their growth and development; Microfinance Eco-
Enterprise Program, to increase participation of the entrepreneurial poor and
micro enterprises in the Sustainable Waste Management Sector, Coco Coir
subsectors and other Eco-enterprises through microfinance.
INDONESIA
Major policies for the empowerment of Cooperatives and SMEs in Indonesia for
the period of 2010-2013 are as follow:
MEXICO
a. The Ministry of Economy and the National Council for Science and Technology
(CONACYT) implemented the following programs to boost technological
capabilities of Mexican firms: 1) the Technological Modernization Program
(Programa de Modernización Tecnológica—PMT); 2) the Science and Technology
Sectoral Fund for Economic Development; 3) the High Value-Added in
Businesses with Knowledge and Entrepreneurs program (Alto Valor Agregado
en Negocios con Conocimiento y Empresarios—AVANCE); 4) Mixed Funds
Program; 5) the Knowledge and Innovation Program (Programa de
Conocimiento e Innovación— PCI); 6) the Support Research and Development
in Projects Program (Programa de Apoyo a Proyectos de Investigación y
Desarrollo Conjuntos—PAIDEC); and 7) the fiscal incentives program.
b. Technology based Business Accelerator program, TechBA accelerates the
development of SMEs by building strong linkage with the international hub of
high technologies. The Program attracts interests of talented ex-pats and also
home-grown technology based entrepreneurs to establish high technology
SMEs in Mexico because they can enjoy the merit of accessing technologies of
advanced economies even though the SMEs base is within Mexico.
c. A Productive Chains Integration Promotion Fund (FIDECAP) has been
established for financing productive projects, which support the inclusion of
SMEs into the productive chains. The identified activities include: establishing
industrial, commercial and services infrastructure, distribution centers, and
entrepreneurship promotion. A Micro, Small and Medium Enterprises
Financing Access Support Fund (FOAFI) has been established to promote
financing and guarantee system for SMEs. A Consolidation of Exportable
Goods Support Fund (FACOE) has been established to enhance the
competitiveness of export oriented SMEs.
39
Annexure II
40
Annexure III
Inter-Ministerial Committee for boosting exports from MSME sector
41
Annexure IV
42
Annexure V
43
Annexure VI
List of participants who attended the Meetings of the Inter-ministerial
Committee for the boosting exports from MSME Sector
47
Annexure - VII
48
cost for payment linkage may be reimbursed to MSME exporters. The present e-
commerce exports are about US$ 1 billion but could grow by over 100% on year
on year basis.
4. Waiver of additional export obligation under EPCG for MSME exporters:
Technology is an important factor as they are not expanding or upgrading
technology. The sum total of the duty on imports comes to around 25% but they
have the option to import at Zero or concessional duty under EPCG Schemes.
However, the average export obligation acts as a deterrent to most of MSME.
Therefore, the average export obligation under EPCG Schemes should be waived
for MSME exporters which will help in replacing the old technology and adopting
new and upgraded technology for better production.
5. Capacity Building for Exports: The new entrepreneurs are not entering in the
field of exports due to lack of knowledge and complexities of International trade.
This is the reason that the share of SMEs exports in India has stagnated at
around 35%. Capacity building programmes for exports in export centric
industrial clusters will help in attracting new entrepreneurs in the field of
exports. Government should provide liberal funding for export based capacity
building so as to equip and attract new entrepreneurs in the field of exports.
FIEO would like to enter into MOU with Department of Commerce or DC (MSME)
for a pan India capacity building programme to take MSME exports to 50% of
country’s exports by 2020.
6. Providing design supports: One of the critical area affecting MSME exports is
lack of exposure in designs. Many of the countries have procured services of
International designers to give a new approach to their exports. WE should
identify 10-15 international designers and bring them to India for 3-6 months to
provide necessary exposure to Indian MSMEs. This will also help them in product
development to meet the international requirement as the designers have fairly
good knowledge of technical standards as well.
7. Double Weightage for MSMEs along with other weightages: MSMEs were
given double weightage for grant of recognition as Status Holder in addition to
other weightages. However, with a policy change effected about two years back,
they are now only entitled for one of the weightage. This has created problem for
MSME. MSME should be given double weightage in addition to other weightage
available for grant of recognition as Status Holder.
8. Reduction in premium and extension in coverage besides data on new
buyers: ECGC should provide concessional premium to MSME by charging 50%
of the normal premium and extend the coverage to 95% from 90% at present.
Moreover, the time taken in issuance of coverage should be compressed by
ECGC. ECGC is not having data on buyers of the new market which is affecting
grant of insurance cover to such markets which are covered under Focus Market
Scheme or Market Linked Focus Product Scheme.
9. MSMEs to focus on China: The rising cost in China and decline in working
population has compelled China to move from labour intensive sectors. This will
provide massive opportunity to India provided we aggressively market in China.
MSMEs can take part in Canton and Kunming Fairs to market their products
and took at opportunities emerging in China. Ministry of MSME should look into
these exhibitions to encourage MSMEs to participate in the same.
49
Annexure VIII
Suggestions received from Various Organizations and Recommendations
of the Committee thereon
1. EEPC INDIA
S.No. Issues Recommendations
1 Revision of MSME Investment Significantly addressed in Budget
Limit under MSMED Act, 2006, announcement that non tax
since larger capital investment benefits of MSME would continue
helps in technological to be available for 3 years after
upgradation of MSMEs. graduating to a higher level.
2 Technology Upgradation Scheme An EFC note is reported to be
for the Engineering Sector. under preparation in M/o MSME.
Technology Fund Upgradation Expansion of CLCSS (which is a
Scheme should also be successful scheme) needs to be
formulated. supported.
Revise the limits for Credit Link
Capital Subsidy Scheme (CLCSS).
(20% capital subsidy and loan
upto Rs. 5 crore)
Export Credit Related Issues:
1 Interest Subvention on Rupee Expeditious Credit of Interest
Export Credit should be paid Subvention is essential for
expeditiously up front. Exporters. SBI perhaps does so.
Other banks perhaps do so only
after receiving the amount from
RBI/Govt.
It is recommended to examine the
reasons for delay; so as to ensure
that interest subvention is
provided to all the exporters on a
timely basis.
2 Lower Interest Rate on Export Recommended to consider
Credit in Foreign Currency whether the spread can be
(Currently charges as high as reduced to Libor + 3%.
Libor + 4%) (Earlier it was LIBOR + 2.5%).
Padmanabhan Committee
(Reserve Bank of India) also
recommends that in respect of
export finance for which refinance
is being provided by RBI, banks
may not charge spread beyond a
specific cap.
3 Provide Rupee Export Credit to It is necessary to reduce the cost
Exporters at the Repo Rate. of Export Credit, to around 7%.
Perhaps, need to give extra
interest subvention of another 2%
for MSME exporters who make
timely payment. Padmanabhan
50
Committee (Reserve Bank of
India) also recommends framing
of suitable interest subvention
policy for long term export credit.
4 Export Credit Limit to MSME This needs to be institutionalized,
Units should be increased by particularly when rupee is
10% Automatically. depreciating.
51
2. APEX Chamber of Commerce & Industry
S. No. Issues Recommendations
1. Excise rebate should be granted This is to be examined
within 30 days instead of 90 days. by CBEC.
2. Eligibility for subsidy under CLCSS Needs to be considered
(of MSME) be increased to Rs.5 crore by D/o of MSME (in
instead of Rs.1 crore. their proposed EFC for
modification of CLCSS)
3. Need to reduce transaction costs for Matter to be examined
MSME exporters (presently stated to by separate Committee
be around 10%) headed by DGFT.
52
3 a) Replacement of Duty Entitlement List of items without a Duty
Pass Book (DEPB). Drawback Rate may be
b) Duty Credit Advance License provided, so that CBEC may
Scheme. It allows flexibility on this take further action.
count: i) The exporter can herself (Action: CBEC/DGFT)
import one or all the inputs used in
exported product and use the
corresponding duty credit obtained
through the scheme.
53
5 Exports under priority sector It may be accepted for MSME
lending. exports. Padmanabhan Committee
(Reserve Bank of India) also
recommends inclusion of export
credit under Priority Sector
Lending.
6 a) Swap facility scheme is a) Recommended for consideration
available till June 28, 2013. It by RBI
should be extended for at least 3
years with annual rollover.
b) RBI should provide 100%
refinance under the scheme.
c) The fund for swap may be
increased from USD 6.5 billion
to USD 25 billion to ensure
adequate availability.
d) 50% of the total fund should
be earmarked for MSME units.
7 Deeper Interest Subvention for To reduce cost of credit for MSME
MSMEs, despite 2% interest exporters, additional interest
subvention, cost of rupee credit subvention of 2% may be allowed
is 11-12% for MSMEs exporters. to MSME exporters who repay on
4% interest subvention required. a timely basis during the year.
Padmanabhan Committee
(Reserve Bank of India) also
recommends framing of suitable
interest subvention policy for long
term export credit.
8 Creation of an Export There is a need to increase the
Development Fund. The budget funds available for marketing; and
for MDA of DoC is about Rs. 50 accordingly increase budgetary
crores. The policy of MDA talks provisions for MDA/MAI (from
about supporting a maximum of present level of Rs.50
five visits by an exporter with a crore/Rs.180 crore to Rs.150
total support of Rs. 7.10 lakh (4 crore/Rs.500 crore respectively)
to different focus areas and 1 to
rest of the world).
9 Support to E–Commerce. All product EPCs to set up e-
E-Commerce portals provide a enabled sites.
marketing support to MSME and DGFT may set up a website (as a
the linked payment gateway new scheme).
ensures payment without any
risk to exporters.
10 Waiver of additional export Not recommended.
obligation under EPCG for
MSME exporters.
54
11 Double Weightage for MSMEs DGFT to consider.
along with other weightages for
grant of recognition as Status
Holders.
12 Capacity Building for Exports.
13 Providing design support and It may be considered and FIEO
exposure to MSMEs for better can be made Implementing
product development. Agency.
Existing scheme of MSME be
modified to provide both hard
intervention
(infrastructure/common facility
centre) and soft support
(training/DPR preparation).
6. TEXPROCIL
S.No. Suggestions Recommendations
1 Extend 2% interest subvention to MSMEs are already covered under
the entire cotton textile sector. 2% Interest subvention.
2 Incorporate separate entries in Needs to be ensured by
the Drawback schedule for CBEC/DOR.
Technical Textiles (Woven/
Knitted) with Elastomer
(Spandex/Lycra) special finish
and suitably modify value caps.
3 In order to avoid unintended May be examined by CBEC.
exclusions cover Fabrics items at
the four digit HS level and Made
ups items at the two digit HS
level.
56
4 The TUFs Scheme should be Ministry of Textiles should
finalized and announced quickly. expeditiously finalize the matter.
The Blackout period (June 2010 –
April 2011) should also be
covered.
5 Suspend Cabotage Rules for Ministry of Shipping may examine.
transporting Cotton from Gujarat
& Maharashtra to Tamil Nadu for
a period of six months i.e. from
Oct 2013 to March 2014 so that
foreign vessels can carry coastal
cargo until infrastructure
facilities are streamlined in the
country.
7. FICCI
S.No. Suggestion Recommendation
1 Custom duty on Raw Materials FICCI to give list of items with no
used in a product should be dual use –with inverted duty
lower than the duty charged on structure.
the finished products being CBEC would examine the matter
imported having similar Raw thereafter.
Materials used on it. e.g. Felt
used on lawn tennis balls and
finished tennis balls.
2 Process cum Product List of Product Clusters where
Development Centre should be Process cum Product
established in every cluster with Development Centre is required
technical staff for testing the will be given by FICCI. Matter to
products and to assist in be examined for approval
development of the products. thereafter by MSME/DOC.
3 To encourage R&D activities Not related to exports.
amongst MSMEs, provision to
incentivize MSMEs (by way of
tax reduction or subsidy), for
amounts incurred abroad also.
4 Cumbersome Procedure for Not related to exports.
Registering with DST for R&D
eligibility.
5 Need to create virtual market May be examined for
information cell on latest implementation by industry
development on consumer councils, along with institutions
preferences, standards, like IIFT.
regulations, etc. where MSMEs
can be made aware.
6 Buyer Seller meets should be Marketing support to be
planned considering difference enhanced for MSME; through
in SME definition across the higher budgetary allocation for
globe. MDA/MAI.
57
7 List of dead patents to be -Indian Patent Office may do so,
provided to SMEs to enhance for local patents.
innovation at low cost. - FICCI may inform of problems
in access from foreign patent
office, if any.
- Possible to use commercial
offices in Indian Embassies.
8 Thrust should be given to the Traditional crafts need to be
MSME sectors which have supported for exports. DOC to
natural advantage, (like examine.
Handicrafts)
9 Technology Upgradation Fund CLSS of MSME is presently only
should be created for MSMEs. for machinery and subsidy is
only 15%. This requires enhance-
ment, as also inclusion of
support for infrastructure and
CETP’s. Procedural issues need
streamlining.
10 MSMEs face the problem of The Indian Embassies(commercial
unpaid invoicing in import and sections) could assist in this
export. It is suggested that a regard.
facilitation council should be set
up to take up the matter on their
behalf at a subsidized cost.
11 Reduction of Drawback from 3% For CBEC.
to 2.4% is not justified. The
same rate of 3% should be
restored.
12 Refund of Excise Duty against This may be examined by CBEC.
physical export under Rule 18 of
central excise should be done on
line similar to draw back refund.
13 Similar facility of refund of Not relevant for physical exports.
Excise Duty should be extended
in case of deemed export.
14 Refund of TED should be This may be considered by
restored. DGFT.
15 Accumulation of CENVAT Credit Refund is allowed on a
should be allowed for buying raw proportional basis for physical
material or refund of accumu- exports.
lated cenvat credit should be
made for deemed exports.
16 In case of domestic supplier who Procedural issue – to be
is having invalidation of advance examined by DGFT.
authorization cannot get the
benefit of supplies made before
applying for advance
authorization. The anomaly
should be removed.
58
17 At present Advance Not recommended.
Authorization is not allowed to
be transferred as per restriction
imposed by FTP policy.
Restriction should be removed
and the same should be allowed
to transfer.
18 Earlier condition of positive Not recommended.
value addition against 15% (wef
16.02.10) should be restored in
case of Advanced Authorization.
It is recommended that FICCI may give details for the issues related to financing,
credit and marketing.
59
8. COUNCIL FOR LEATHER EXPORTS
S.No. Suggestions Recommendations
1 Capacity Modernization and It is seen that there has been no
Technological Upgradation – problem of funding under DIPP
Request to notify schemes under Scheme. Hence, no change is
Indian Leather Development proposed.
Programme (ILDP) for XII Plan. The scheme guidelines may be
Increased assistance at 50% on similar to schemes of M/o
the investment made in plant MSME/ M/o Textiles.
and machinery subject to ceiling (Action: DIPP)
of Rs.2 crore under Integrated
Development of Leather Sector
(IDLS) (as against the current
limit of 30% for SSI and 20% for
non-SSI and 20% for all units for
assistance above Rs.50 lakh)
2 Special Package for USA market: Marketing support may be
a) 100% grant under Market considered under MAI, for the
Access Initiative Scheme (MAIS) suggested areas including design
for design support. support and buyer sellers meet.
b) Provision of 6% duty credit (Action: DoC)
scrip for exports to USA under
Focus Product Scheme (as
against 4% now) for notified
leather products and footwear.
c) Special Package of 100% grant
under MAIS for buyer seller meet.
3 Request to extend 2% interest It may not be considered for large
subvention scheme on rupee sector as the focus is on exports
export credit to entire leather by MSMEs.
sector during 2013-14
4 Enhancement of duty free limit This would have a trade-off with
under Duty Free Import Scheme the Duty Draw Back Rate. Hence,
(DFIS) from 3% to 5% not advisable.
62
6 Calibrated exports of Cotton Ministry of Textiles to examine.
Yarn. (Remove Export Incentive
on export of Cotton Yarn).
Import duty on cotton yarn to be
reduced from 12%.
7 24*7 clearances of drawback This has been done for 10 ports,
shipping bills. but only for white shipping bills.
Problems in Pipavav and Tuticorin
persist. The
facility be extended to non-white
shipping bills. Export of Duty
Drawback consignments has now
also been allowed 24*7 for
Bangalore, Chennai, Delhi, and
Mumbai Air Cargo Complexes on
16.5.13. This needs to be
extended to other major ports also
in a time bound manner by CBEC.
63
12 Govt. to notify that Textiles DGFT to examine all such cases.
Committee’s opinion on
clarification of garments shall be
binding on Customs.
13 Congestion in ports and DGFT/CBEC will look into the
connecting the ports online. matter including electronic
payments.
Description of fabrics both for knitwear & woven required by the industry, but
not widely available domestically:
1) 100% Polyester Dyed Fabrics both for knitwear & woven
3) Cotton & Spandex Blended/Printed dyed fabrics both for knitwear & woven
4) Cotton and Elastane blended printed fabrics both for knitwear & woven
5) Cotton & spandex & polyester yarn dyed/printed blended fabrics both for
knitwear & woven.
6) Cotton & polyester yarn dyed blended fabrics both for knitwear & woven
7) Cotton & metallic yarn dyed blended fabrics both for knitwear & woven
8) Cotton & spandex & metallic blended fabrics both for knitwear & woven
10) Cotton & elastane printed fabric both for knitwear & woven
11) Cotton & lycra dyed fabric both for knitwear & woven
64
12) Cotton & nylon & spandex dyed/printed blended fabric both for knitwear &
woven
13) Cotton & silk lining fabric both for knitwear & woven
14) Cotton & silk dyed/printed fabric both for knitwear & woven
15) 100% linen chambray woven/dued fabric both for knitwear & woven
16) 100% ramie dyed/blended/printed/yarn dyed fabric both for knitwear & woven
17) Nylon & spandex lining fabrics both for knitwear & woven
19) 100% polyester velvet dyed fabric both for knitwear & woven
25) 100% polyester knitted grey/dyed/blended/printed fabrics both for knitwear &
woven
26) Cotton/nylon/embroidery croched lace lining fabric both for knitwear & woven
27) 100% rayon died fabric both for knitwear & woven
65
10. JHARKHAND SMALL & TINY INDUSTRIES ASSOCIATION
S.No. Suggestions Recommendations
1 Institutional arrangement should To guide MSME’s, the Associations
be made for dialog with MSME need to be more pro-active and
exporters by reviving Regional inform the MSME’s regarding the
Export Import Advisory export related schemes, procedures
Committees. and facilities of the Government.
(Action: MSME Association)
2 Maximum import license fee Zonal DGFT’s and the Chief
should be different for large Commissioner of Customs should
Scale Industries and MSEs. At regularly convene meetings to
present import license application resolve the issues.
fee is Rs. 2/- per thousand, with (Action: DGFT/CBEC)
ceiling of Rs. 150 thousand.
Thus, those applying for import
license of more than Rs. 75 lacs,
will have to pay maximum
import license application fee of
Rs. 150 thousand. Differential
existed until 1983-84.
3 Higher rate of concession/ May be considered.
incentive should be given to (Action: D/o Commerce)
MSMEs exporters than given to
large industries.
1. 15000 Registered exporters (all MSMEs except basmati rice & buffalo meat)
2. Subsidy 25% or Rs.25 lakhs – for strengthening infrastructure (Common
Facilities)
3. Packaging, Designing etc. to be now given higher subsidy
Mango: a) Vapour Heat Treatment (Requirement of Japan); leads to part
cooking and early spoilageand b) Irradiation (USA) – Nasik (AERB), 2 more by
APEDA at Vashi and Ahmadabad (Gujarat Agro Industries)
67
4. Apeda Scheme:
i) Infra Assistance (Rs.1200 crore 12th Plan)
ii) Transport Assistance
iii) Quality Assistance
iv) Marketing Assistance
5. Other Issues:
a. Cost of working capital too high
b. Packaging assistance required. Scheme to be formulated.
c. MDA/MAI too low
d. APMC amendment – to exclude fruits/vegetable & contract farming.
7. Exempt from land holding (e.g. plantation crops, tea, coffee, rubber)
9. Cold Storage shortage – 36 million tonnes, last year sanctioned only 1 million
tonnes. NHB has own scheme. RKVY, APEDA also fund cold storages.
10. Meat export has huge potential (like China, DOC should manage with Russia &
Saudi Arabia.
11. Poultry (Issue of Avian Influenza) Oman, Afghanistan, Kuwait main markets
12. Protocol with OIE to give individual states specific (rather than whole India
being treated as whole)
68
12. THE PLASTICS EXPORT PROMOTION COUNCIL
S.No. Suggestion Recommendation
1 There is an urgent need to May be considered. D/o
increase the export of value Chemicals to examine and
added plastic items and increase formulate TUFS for plastic
its share in the total plastic processing sector.
exports. A major constraint in
achieving this goal is the loss
production volume of plastic
processing industry.
Technology Upgradation Fund is
therefore essential for Plastic
Processing Sector.
2 Formation of SPV for the It is recommended to enhance the
purpose of Joint Marketing. MDA budget.
Enhancement of budget for the
MDA Scheme.
3 Setting up of Plastic Processing D/o Chemicals to closely monitor
Parks, having facilities for design and expedite progress of the
and prototyping of plastic items, PCPIR projects. For Common
mould & die design centres, tool Facility/Design Center, Scheme of
rooms etc. Action on setting up D/o MSME may also be tapped.
of 4 PCPIRs to be expedited.
4 Consideration of East Europe DOC to examine the issue.
under the MDA Scheme.
5 The costs of PCFC need to be It needs to be verified if under
reduced. PCFC, the limits are converted
into INR and on payment
reconverted to USD leading to
losses for exporter.
15. ECGC
Additional Information:
The DIPP has also recently issued a clarification on definition of cluster for obtaining
benefits of the National Manufacturing Policy (NMP).
79
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